Hewlett Packard Enterprise Company

Good afternoon, and welcome to the third quarter 2022 Hewlett-Packard Enterprise Earnings Conference Call. My name is Chuck, and I'll be your conference moderator for today's call. At this time, all participants will be in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Andrew Simonick. Vice President of Investor Relations. Please proceed, sir.

Great. Thank you. Good afternoon, everyone. I'm Andy Samanek, Head of Investor Relations for Hewlett Packard Enterprise. I'd like to welcome you to our fiscal 2022 third quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer, and Tarek Robyadi, HPE's Executive Vice President and Chief Financial Officer. Before handing the call over to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today's earnings release on our HPE Investor Relations webpage at investors.hpe.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For a discussion of some of these risks, uncertainties, and assumptions, please refer to HPE's filing with the SEC, including its most recent Form 10-K and Form 10-Q. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 2022. Also, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of currency. Finally, after Antonio provides his high-level remarks, Tarek will be referencing the slides and our earnings presentation throughout his prepared remarks. As mentioned, the earnings presentation can be found posted to our website and is also embedded within the webcast player for this earnings call. With that, let me turn it over to Antonio.

Well, great. Thank you, Andy, and good afternoon, everyone. Thank you for joining today's call. As we have demonstrated throughout 2022, HP is delivering for our customers and our shareholders. In the third quarter, HP grew revenues, increased profits, and strengthened gross margins through steady operational focus and execution. and despite continued high supply conditions and unfavorable foreign exchange. In our results, you will see the customer demand for our industry-leading portfolio. We continue to accelerate our recurring revenue this fiscal year, which validates the compelling value proposition we offer our customers, and the loan and the strong response to HP GreenLake, our unified H2 Cloud as a service platform. Customers continue to prioritize investments in IT, they find HP's technology solutions to be particularly relevant in today's complex microeconomic environment where technology innovation is critical to accelerate business transformation and deliver important business outcomes. In the third quarter, total HP revenue increased 4% year-over-year to $7 billion, which was also above the sequential outlook we had given. New orders exceeded our expectations, despite finally starting to decelerate the growth rates, bringing our quarterly exit backlog to another record level. That is significant, considering that for the previous four consecutive quarters, we had grown orders 20% or more year over year. We continue to see robust customer demand in the market and a high-quality, durable sales pipeline. RHP GreenLake customer base is growing, and our customers are voting whether workloads and data. In Q3, we doubled HP GreenLake new logo growth year over year, and our existing HP GreenLake customers continue to renew and expand contracts with us. The HP GreenLake platform now has an exabyte of data under management, and customers worldwide connect more than 2 million devices to it. The momentum is reflected on annualized revenue run rate up 28%, and total as-a-service orders up 39% year-over-year, bringing our year-to-date orders growth to 86%. These indicators show enduring demand for our as-a-service solutions, even while supply constraints limited some installations. Once again, we expanded gross margins in the quarter. Non-GAAP gross margin of 34.7% was up half a point sequentially and matched the highest we have ever generated since we began our as-a-service pivot in 2019. We improved non-GAAP operating margin even more than gross margin to 10.5% this quarter at 120 basis points sequentially and 70 basis points year-over-year. Non-GAAP diluted net earnings per share was $0.48, a 9% sequential rise and 2% year-over-year. Our cash flow from operations was $1.3 billion, and our free cash flow in the quarter was $587 billion. This is in line with our typical seasonality as we improve cash conversion cycles in the second half. From a supply chain perspective, the dynamics remain largely unchanged from the last few quarters, with certain components still in tight supply, which limited shipments. However, we have made progress in proactive measures we are taking to enhance the resilience of our supply chain, including steering demand to products that do not require supply-constrained components, offering new multi-sourcing options, and implementing product design changes to our world-class engineering capabilities. We could also see some easing in supply condition if consumer demand continues to slow and component capacities shift towards enterprise customers. Overall, we expect supply chain to remain challenged, supply remain challenged until next year, although with some very early signs of potential easing in the near term. We remain focused on translating customer demand into profitable revenue growth, as shown in our Q3 results. Customers continue to tell us that they need to drive their important digital transformation work while managing cost. And it is clear we can meet those needs with our Edge to Cloud portfolio delivered through the HP GreenLake platform. HP GreenLake brings a unified hybrid cloud experience to our customers' data and workloads, enabling them to consume IT as utility. In June, I was thrilled to join 80,000 customers and partners again in person in Las Vegas at HP Discover. We unveiled a series of new cloud services and enhancements for the HP GreenLake platform to further advance the hybrid cloud experience for customers. We were particularly excited to announce HP GreenLake for Private Cloud Enterprise, which addresses customers' desire for their own automated, flexible, enterprise-grade private cloud. We recognize the important role our partner ecosystem plays in our success and the success of our customers. To continue to expand our growing partner ecosystem and enable them to adapt to customers' evolving requirements, we launched a new program that helps partners build their business on top of our HP GreenLake platform. Customers are entrusting HP GreenLake with their most critical workloads and applications. Japan Car Network, Japan's leading credit card payment network and an existing HP GreenLake customer, expanded its contract in Q3 to add 100% fault-tolerant platform running on HP non-stop servers with an integrated software. The new implementation will power the carnet systems demanding transaction-intensive applications as Japanese consumers rapidly increase use of credit cards and cashless payments. In India, the country's largest public sector steel producer, also expanded adoption of the HP GreenLake platform to increase productivity and reduce energy consumption. By modernizing its critical S&P environment with HP GreenLake, the organization corresponds more quickly to business demands and has reduced its data center footprint by over 60% to help reach sustainability goals. These are just two examples of existing customers doubling down on the HP GreenLake platform to address new needs. We see this as an important endorsement of the valuable role HPE GreenLake plays in our customers' IT strategy. At the edge, we continue to drive innovation with our solutions. Aruba has an impressive quarter with revenue rising 12% year over year and orders increasing more than 15% for the seven consecutive quarters. In Q3, Aruba announced new AIOps capabilities that reduce the time IT teams spend on manual tasks like network troubleshooting, performance tuning, and security enforcement. These new AI-based insights leverage Aruba's industry-leading data lake from more than 120,000 Aruba users who are now on the HP GreenLake platform to enhance visibility, operations, and user experience. Our edge technology was on display early this month as we created a secure network to power the Birmingham Commonwealth Games 2022 in the UK. Aruba provided a games network connecting thousands of staff and volunteers and over 4,400 athletes across 20 venues and 38 concurrent events to ensure smooth execution of the games. Committed to leaving a legacy of digital sustainability in the region, HP is now working with the local organizations to make the technology used for the event available to the community, including schools and hospitals. As data continues to grow and evolve rapidly, we are seeing customers use our technology to unlock data in incredible ways. Catharina Hospital, one of the largest hospitals and leading centers for heart diseases in the Netherlands, is using HPE Ezmeral software to build a cloud-native data lake house that securely collects and analyzes anonymized patient data from internal and external sources. This will accelerate model training and detect anomalies Among the 500,000 electrocardiograms already available for data analysis were higher precision to identify the correct diagnosis and treatment. And in one of the most exciting breakthroughs to showcase the power of AI at scale, early this month, I was pleased to visit the Oak Ridge National Laboratory to celebrate Frontier, the world's first, fastest, and greenest exascale supercomputer that HP built for the lab. Frontier represents a new era of scientific discovery and innovation that will strengthen U.S. national security and industrial competition. HB has a long history of industry-first and one-of-a-kind innovation that advances societal progress. We see this as a part of our purpose to advance the way people live and work. We also deliver on our purpose through our commitment to create a more equitable and sustainable world. Early this summer, we took the bold step of accelerating our net-zero carbon emission target by 10 years to 2040. Effective strategies to achieve net-zero carbon emissions are a cornerstone of corporate longevity, and we continue to help customers drive their own sustainable transformations. I'm proud of HP's Q3 performance and the progress we are making to cement our position as the leading edge-to-cloud company. When I speak to customers, it is very rewarding to hear how they are using our differentiated portfolio to solve their most critical business problems. Every day, we are proving how essential HPE is to the customers and communities we serve. We couldn't do this without the dedication of our 60,000 team members who impress me every day with their bold innovation and disciplined execution. We have crafted a strategy at HP that is winning in the marketplace. And I'm confident in our ability to execute on our commitment with strong demand, a solid pipeline, and a unique edge to cloud offering that is delivering revenue growth and expanding gross margins and operating margins for our company. I look forward to updating you about our strategic priorities and outlook when we host our security analyst meeting in late October. I hope you will join to hear how we plan to continue to generate value for HP shareholders. Let me now ask Tarek to discuss our performance in detail and go through our business segment results. Tarek, over to you.